New Credit Assessment Model for MSMEs Launched by Nirmala Sitharaman

The model aligns with the Union Budget 2024-25 announcement, which emphasized the need for Public Sector Banks (PSBs) to develop in-house capabilities for assessing MSME creditworthiness instead of depending on external assessments.

In a significant move towards improving credit accessibility for Micro, Small, and Medium Enterprises (MSMEs), the Union Finance and Corporate Affairs Minister, Smt. Nirmala Sitharaman, along with Minister of State for Finance, Shri Pankaj Chaudhary, launched a New Credit Assessment Model based on the scoring of digital footprints of MSMEs. This initiative was unveiled during the Post Budget interaction in Visakhapatnam today. The model aligns with the Union Budget 2024-25 announcement, which emphasized the need for Public Sector Banks (PSBs) to develop in-house capabilities for assessing MSME creditworthiness instead of depending on external assessments.

Key Features of the New Credit Assessment Model

The new model leverages digital data and automation to enhance the credit assessment process, making it more objective and efficient. It utilizes verifiable digital footprints of MSMEs to facilitate seamless credit appraisal and decision-making. The model applies automated processes for loan appraisal, using objective criteria to assess both Existing to Bank (ETB) and New to Bank (NTB) MSME borrowers.

Key components of the model include:

• Name and PAN Authentication via NSDL
• Mobile and Email Verification using OTP authentication
• GST Data Fetching through API-based service providers
• Bank Statement Analysis leveraging the Account Aggregator framework
• Income Tax Return (ITR) Upload and Verification
• Automated Commercial and Consumer Credit Bureau Checks via API integration
• Fraud Detection and Due Diligence using Hunter checks and other advanced verification tools

Advantages for MSMEs

The new model is designed to bring multiple benefits to MSMEs, enhancing their ease of accessing credit through streamlined and digitized processes. The advantages include:

• Online Submission of Loan Applications from any location
• Reduced Paperwork and Elimination of Branch Visits
• Instant In-Principle Sanctions through digital approval mechanisms
• Seamless Credit Processing with end-to-end straight-through processing (STP)
• Reduced Turnaround Time (TAT) for loan approvals
• Data-Driven Credit Decisions based on transactional behavior and credit history
• No Requirement for Physical Collateral for loans covered under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

A Paradigm Shift in MSME Credit Evaluation

This digital footprint-based credit assessment model marks a significant improvement over traditional credit evaluation methods, which primarily relied on asset ownership and turnover. By incorporating transactional behavior and other digital metrics, the new model extends credit accessibility to MSMEs that lack formal accounting systems, thereby fostering financial inclusion and business growth.

This initiative is expected to revolutionize the MSME credit landscape, ensuring a fairer, more efficient, and technology-driven approach to lending. The adoption of such a model aligns with the government's broader vision of fostering financial inclusion and strengthening the MSME sector as a key pillar of the Indian economy.